2/20/2007 @ 3:11PM

Motorola's Zander Has Real Trouble Now

Before the winter sun was up last Friday, Motorola CEO
Ed
Zander
Ed Zander
received a phone call from Ron Garriques, head of the Motorola Mobile Device unit that accounted for roughly 65%, or $28 billion, of Motorola’s $43 billion in 2006 sales. Garriques told Zander that he was out of there.

Garriques is already in Round Rock, Texas, at
Dell
headquarters as the new president of Global Consumer Operations. Clearly, Garriques had had enough and bolted when a great opportunity presented itself to help rebuild Dell. Because Motorola
appointed two executives as “interim co-heads” on Friday, it appears Zander was caught flatfooted.

So who is Ron Garriques anyhow? Former Motorolans have described Garriques to me as one of the smartest guys, not just at Motorola but also in the telecom industry, and a brilliant marketer. That makes him a great catch for Dell.

Garriques, 41, was intimately involved in the development of the clamshell flip phone that revolutionized the design of cellphones a number of years ago. To broaden his knowledge and give him international experience, he was sent by former CEO Chris Galvin to run Europe, Middle East and Africa, from September 2002 to September 2004. Then Zander brought him back to the U.S. and made him a key player in his new team.

Over the course of the last several months, Zander has gone from showman to clown at his recent presentations. Last July at Motorola’s annual multimedia extravaganza for analysts in Schaumberg, Ill., Zander spoke glowingly about the great line of exciting products Motorola was bringing to market in the months ahead. A few weeks later, on Sept. 7, 2006, he gave almost the same presentation to the Citigroup Tech Conference in New York City. At neither of those talks did Zander indicate that Motorola would miss its third-quarter revenue forecast or see its margins collapse in the fourth quarter of 2006.

Trying to divert analysts’ attention away from Motorola’s poor product offerings, Zander has resorted to such tactics as riding a yellow bike onto the stage in Las Vegas for his keynote talk in January at the Consumer Electronics Show. Once Motorola warned in early January that it had missed earnings estimates for the fourth quarter, the stock fell to a low near 18. Zander abruptly scheduled an analyst presentation in New York at the same time as the full release of earnings on Jan. 19. The meeting didn’t generate too much positive feedback for Motorola or for Zander, and several analysts lowered their ratings.

Another round of meetings with analysts was scheduled for Spain in early February during the 3G-GSM industry trade show, but Zander was not present. If Zander had had a happy song to sing, one presumes he would have sung it rather than cancel out.

Folks who were in Spain for the show reported to me that yet again the Motorola bag was fairly empty compared with new devices from Samsung and
Nokia
that continue to excite consumers as feature-rich new third-generation (3G) products head to market.

Zander often appears to blame others when things don’t go well. One wonders whether he will accept culpability for the recent strategy of putting Razrs into colored lingerie (red in February for Valentine’s Day) rather than market new and exciting products that would stand out. This very competitive mobile-device space sees new players emerging with regularity; think Apple‘s
new iPhone.

Because Motorola has not recently had products that cellphone companies wanted to offer, it has sold tens of millions of Razrs and their offshoots by slashing prices. Margins have collapsed in the process. For that reason, I expect that Motorola is also very likely to disappoint again in the first quarter of 2007, now halfway over. Without Garriques’ skills to pull out the quarter and to shepherd along the development of new offerings, look for analysts who already haven’t done so to lower estimates this week.

Carl
Icahn
Carl Icahn
recently showed up with a self-described 1.4% position to get Motorola to share its large cash hoard ($10 billion) with its shareholders in the form of a big dividend, moving the stock back above $19. The company has been aggressively buying back shares for some time. It’s not clear if Icahn is just looking for his usual greenmail or something more.

Since Zander began his reign as Motorola’s chairman and CEO on Jan. 5, 2004, Motorola shares are up 45.5%. That’s far behind rival
LM Ericsson Telephone
but slightly better than wireless laggard
Nokia
. By comparison, an investment in the Fidelity Select Wireless (FWRLX) mutual fund gained 81.5% over the same period of time, and the Wireless HOLDRs (amex: WMH) exchange-traded fund appreciated by 50.4%. (See chart below.)

We do not own Motorola for our clients, and we question if there is any reason to own it now with its myriad problems, Icahn notwithstanding.

Leveraged buyout players might circle, but the company seems to be in such disarray now, as new product development has languished on Zander’s watch. He inherited a powerful portfolio of phones when he came to the job three years ago. But, just like Wall Street, he’s in another business of “What have you done for me lately?” And the answer is that Zander seems to have run out the string and has nothing much to offer from his own time in charge.

Zander’s acquisition program does not seem to have excited shareholders, either. Motorola’s stock lagged the industry last year and again this year. Even worse, Nokia and Ericcson have been up while Motorola has been down. Two-thirds of Motorola’s business is now focused on mobile devices. If that sector doesn’t succeed, it is tantamount to impossible for the rest of the company to carry the load on margins and revenues. We’ve been warning Forbes.com readers about Motorola’s problems since last November. Since then, the sky has darkened considerably.

Mea Culpa

When Zander first arrived in 2004 and the turnaround was unfolding, I, too, drank the Motorola/Zander Kool Aid. It took me more than two years to realize that all the press and credit Zander so willingly accepted for the smash success of the Razr was for actions generated by others long before he arrived at Motorola. Consider that it takes about three years to bring new electronics products to market. Zander arrived just over three years ago. This last six months is exactly when his first line of products should have been on the shelves. But the shelves are bare! If you are the captain, whose responsibility is it that the good ship Motorola has run aground?

Last July, I even suggested here at Forbes.com that
Time Warner
might do well to shake itself awake and find someone like Zander to shake it out of its own lethargy. As of Jan. 25, Zander has been a Time Warner director, his first public company board position, according to his résumé on the Motorola Web site. I surely don’t want
Dick
Parsons
Dick Parsons
to blame me for this lame idea.